RegTech experts: get out of your own way

As we’ve covered frequently on this site, incumbents are spending billions complying with the thousands of new, granular obligations demanded by FS regulators.

So why, after eight years of regulatory reform, is the industry still struggling to fund companies that can revolutionise the way we establish policies and ensure compliance?

In 2016 we told UK authorities of four structural RegTech barriers for the providers entering the space: motive, mandate, complexity and timescales.

Last month, over 250 professionals at JWG’s RegTech Capital Markets Conference listened to heads of departments from Barclays, Bank of New York, Credit Suisse and Henderson debate the COOs’ views of the space.

The conclusion?  The biggest challenges are internal and firms need to get out of their own way to fund the innovation the entire business requires.  They can do this by concentrating on:

  • Business cases
  • Organisation structure
  • Collaborative procurement
  • Getting standards though action
  • Bringing in maverick personalities.

Let’s start with the business case.  Can you bring RegTech products in for a point solution?  Difficult … it might be cheaper to make a quick fix with your existing tools in isolation.  But, what if you look across all the regulatory demands and the many different platforms that they affect?  If you consider the requirements that are common for understanding multiple regulations and for getting the different semantic meanings mapped back to source, it will be easier for the project to go ahead.

Next up – organisation structure.  Much of the panel emphasised that having the right organisation is very important.  Of course, each business carries first line accountability for some of the regulations.  However, when you consider the burden of the other lines of defence, the joint demands of compliance, risk and audit may well lead to new RegTech requests.

A couple of the panellists mentioned that a central function should be put in place to organise and bring together the needs of the front, middle AND back-offices in order to make rational investment decisions.  These decisions may not be 100% focused on regulation, either; it is possible to find ways to make life easier for the customer and do business better with RegTech at the same time.

Still not convinced you need to federate the decision making beyond a business facing a single regulation like MiFID II?  Enter the UK Senior Manager Regime, Europe’s GDPR, BCBS 239, Recovery and Resolution planning and other ‘horizontal’ regulations that impose named accountability for senior managers.  Want to prevent looking bad to the shareholders and avoid jail time?  Think RegTech.

Another big theme was mastering the procurement process.  Yes, smaller vendors innovate but they can be inherently riskier.  But, stick with the lumbering, risk adverse giants who got your compliance infrastructure where it is today and you’ll keep giving them billions.  Hmmm.  Quite a conundrum!

The answer?  Recognise up front that your procurement folks are key in helping create an open-minded pathway through your procedural maze.  Open up collaboration with those smaller RegTech companies by making reasonable contractual and finance demands (like pay the invoices on time!).

Some of these new entrants may not know much about financial regulation, so you and your subject matter experts will need to work with them to find a way to apply their innovations to your technology stack.  In sum, open up the dialogue.  Be more collaborative.

The penultimate barrier debated was standards.  JWG have argued that standards are critical to making RegTech safe.  The panel shed some light on how they are thinking about getting there through what we take away as ‘standards in action’.  The general consensus was that, by focusing on smaller RegTech components that prove their viability first, they will create practices that can become standards.  In other words, rather than spend years hammering out how to seed a new plant, let a thousand flowers bloom and pick the ones that grew best.

This view aligns well with the delegate voting on who should be the ‘owners’ of RegTech standards.  The most popular opinion was that regulators, standards organisations, individual vendors and investment firms should collaborate for RegTech standards.  However, in second place, voters said that ‘only regulators’ should be the owners.  Having further guidance from the regulators may be useful and we hope a RegTech council could turbo-charge standard development.

Finally, and perhaps most importantly, the experts agreed that you can’t do RegTech without maverick personalities.  Why?  Because you need leaders who don’t accept the status quo and allow themselves to challenge entrenched thinking.  After all, the regulatory recipe for omelettes demands that you break a few eggs to get one good enough to eat!

Our thanks to all of you that participated in this top-rated debate.  As we get out of basecamp and begin our ascent of the RegTech mountain this year, we hope to work with you on getting into the detail of the 5 regulatory-themed special interest groups we are launching.  The first RegTech SIG invites for Client Management – Accountability went out last week.  This meeting will look at the conduct obligations of financial services professionals across the UK, EU and beyond.  Please contact to get involved.


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